During the bubble years of the mid-2000s, Americans were encouraged, often inappropriately, to become homeowners. As prices spiraled unsustainably higher, buyers — and lenders — stretched even more to reach that goal.

Then it all came crashing down.

Prices dropped about 40% nationwide, lenders stopped lending and mortgage companies stopped answering the phone when distressed homeowners called. In the deep recession that followed the market shock, millions of jobs and trillions of dollars of housing wealth disappeared. America, the land of opportunity and mobility, was suddenly stagnant and uncooperative.

In the midst of it all, many Americans made decisions and accommodations that they might never have considered otherwise. One small representation of that is what you might call the rise of the “accidental landlord.”

For some that meant a mortgage from the market’s peak became unaffordable. For others, it has meant being stuck on the property ladder, unable to climb. It’s not clear if this financial crisis left more people in the position of owning a home and needing to unexpectedly rent it out than in past periods, but there are good reasons to think that the lack of dynamism in the economy, now a decade past the 2007-2009 crisis, has left a mark.

MarketWatch collected the personal narratives of four such accidental landlords, all of them millennials or on the cusp of that age group. It’s a demographic often said to be allergic to ownership. In fact, our subjects believed in the so-called American Dream of homeownership, and then had to make painful decisions about how to navigate a system that had turned nightmarish.

For one, the “accident” became a happy opportunity, but these are mostly stories of struggle. Their tales say a lot about the moment in time we’ve just lived through and what could happen again. It harkens decidedly less to the wisest, or most strategic, ways to invest in real estate, no matter the economic cycle. In these instances, the “accidental” part is as significant as the “landlord” bit.

Alison Paoli and her husband bought a small home in Seattle in 2008 at the top of the market, and were, as Paoli describes it, rushed into a mortgage they could never have afforded. At the time, Alison worked for a small communications firm; she later worked for Zillow, also doing communications, and now has a consulting practice. The couple brought one child home from the hospital to the 1,000-square foot home in 2011, but couldn’t bear to keep expanding the family in such a small space, in what they deemed a not-so-kid-friendly location. But they couldn’t get any relief from their bank, either. Finally, in 2012, with the help of the post-crisis Home Affordable Refinance Program, they were able to refinance, and some time later rented out the property and closed on a new, larger suburban home in July 2013, just months before twins joined the family. Paoli thinks people in her area are still stretching uncomfortably to buy housing, which she says she’ll never do again.

Alison Paoli

The Paoli family in front of their Gig Harbor, Washington, home.

“We literally bought it as the market was peaking at the very top, and in the first month we lost equity. We could barely afford the home. We were one of those people that got taken advantage of. Our mortgage payment was $2,500 a month, and $500 a month was mortgage insurance.

We had tried doing a short sale, a strategic short sale, I guess you’d call it. We tried and tried and the bank denied it. They said you have to be late on your payment. But I grew up with parents who always told me, don’t ruin your credit.

The HARP program started and we were able to do a refi to get out of the bad mortgage. We lowered the mortgage from $2,500 to $1,700. That enabled us to rent it out. It was right when the program started. Years of massive stress, what are we going to do, trying to do the short sale. We didn’t know what to do. We thought about walking away. At that time the rental market wasn’t super hot. People were renting but it wasn’t like now when rents were really high. We were able to rent it for a net -$50 a month. We wanted to move to a place where we felt comfortable with our kids growing up, a place where they could ride bikes in a cul-de-sac.

Luckily the home was new and it didn’t need work that first year or two to get it into rentable condition. We had a loss for a year. Every year since then we’ve raised the rent $100 a month and although taxes have gone up, we net $650 a month on it now. I’m my own landlord, I don’t hire a company to do anything. For the first time this year I used Zillow’s [tool] where you find a tenant and you can also do all the application screening through them. My current tenant, some tech guy who moved up from Silicon Valley, pays me through Zillow now. It makes it a lot easier to be a landlord.

The last tenant I had, they said they were trying to repair something that was already broken before they moved in, but they did a horrible job. Half the tenants I have given all the deposit money back to. One tenant I took everything and more. She had a dog that was not potty-trained… I had to replace all the carpet. They paid in the end, but I had to threaten to take them to small claims court.

I’m not the best landlord in the world. I don’t want to make friends with my tenants. I don’t have time to micromanage my rental. Maybe one day it will come back to bite me but I am not a professional landlord.

My parents always told me, be house poor. Invest in real estate when you’re young, don’t pay rent because you’re throwing money out the window. At the same time, the housing market was going up. At that time, I didn’t know a whole lot about it, like I know now. There was no such thing as a recession or the housing market hitting the bottom.

I still believe in real estate as a long-term purchase. Not as a short-term money maker. Hopefully you continue to build equity and you can move up into a second home. Just go short of what the bank says you can afford. Don’t bite off what the bank says you can chew. I can’t imagine if I had had to put a new roof on that place, I don’t know what I would have done. We were shopping at Food Outlet.”

Amy Romem was a teacher in Walnut Creek, Calif., in the San Francisco Bay Area, when she bought a condo late in 2006. Almost immediately, she was deeply underwater, then needed to move for a new job in 2008. The house has only just now regained the value at which she bought. She and her husband have since moved back to the Bay Area. They considered selling the condo to buy a home, but it would have been too expensive to fix it up, pay a broker commission, and so on, and the couple found that they were able to swing the home purchase anyway. For all the big changes in the housing market in the decade between her two purchases, Romem was dismayed to find much that felt familiar: a sense that homebuyers are at the mercy of an industry that’s out to make money at every step of the buying process.

Issi and Amy Romem

Amy and Issy Romem’s young children love their new home - and the outdoor space. They may never know how much effort it meant for their parents to secure it for them.

“I had moved seven times in seven years so I was ready to stop doing that. The reason I was moving was that the rent was going up every year. I became an administrator and finally made enough money that it became possible to buy a home. That was also right at the peak of all the crazy kinds of mortgages, adjustable-rate and all that. But [my lender] had a teacher program. It required some things of me. I remember I went to an ACORN new homebuyer class. It was a good overview of what to expect. I learned a couple of nuggets through that. They said, if you have to pay homeowner dues, make sure you go to the meetings.

It also allowed me to qualify for a down payment assistance program: I think got $15,000 toward down payment assistance. I remember at the end, I was at the point of finishing the pre-approval, and I was at the [bank] office with my dad and the loan officer was explaining how much money I had to bring to the table and she asked me if my dad was going to help and I cried. It was so misleading.

I bought in December and by March, things were already looking kind of bleak. The job I was in ran out of funding and I got a job 80 miles away. There was no way I was going to stay and there was no way I was going to be able to sell it. I hadn’t worried initially. I thought, this is a long-term investment. That’s what my parents and others were saying: you’re in this for the long haul.

I’m still losing money now when you include homeowner dues. That’s only after 10 years and refinancing and putting in $65,000 (to the principal) to get out from underwater and refinance it as an investment property. We’ve had to replace carpet a couple of times, paint a couple times, and over time have replaced all the appliances. At least there’s a tax write-off on my “income property” that’s been losing money.

I’m starting to worry about an assessment. When is the place going to need a roof? The homeowners dues were $265 and now they are $410. Those aren’t ever going to go down. I don’t know why exactly because I don’t go to the meetings.

‘I get super angry about it because I think it’s all a game. I feel like the banks are playing games with lending.’
—Amy Romem of the San Francisco Bay area

I think I’m in it for the long haul. I’m optimistic we’ll come out even. If you’re truly able to hang on to it until you’re retired, it is additional income. I think that the advice (at the height of the bubble) was that there’s ups and downs in the market but that real estate is a good investment. It’s just so expensive. We had to have help from our parents to buy this time. It’s weird being 40 and getting help from your parents. We did have conversations, do we walk away, do we sell at a tremendous loss?

I feel like there’s lots of games: real estate games, bidding war games. It was interesting comparing homebuying experiences then and now. There was no Realtor.com or Redfin back then. It was a family friend realtor, he offered a lot of personal touches. Now (buyers) are driving the process, what you want to see, what you want to bid, what you think something is worth, and just using the Realtor as a sounding board. The middlemen are the same and they earn the same even though the process has changed so much. That was a little frustrating for us.”

Jason Puckett, the CEO of an advertising technology firm, was working in his first job when the 2008 financial crisis hit. “It’s ingrained in me that house prices could go down,” he said. But that hasn’t been his personal experience. In 2010, he bought a 3-bedroom home in Scottsdale, Ariz., where he was living, intending to rent out the extra rooms to swing the mortgage. He had to move for work more quickly than he’d expected, but continued to rent out the Scottsdale property. In Chicago, the same pattern repeated itself — he’d just closed on a home in the West Loop when he learned he’d have to move to Silicon Valley for a job.

Jason A. Puckett

The Chicago home of Jason Puckett. Just after he closed, he learned he'd have to move to California for work. "We never even finished unpacking," he said.

“I was 24 and I wanted to purchase a property just because I know how financially beneficial it can be. I still own the place, it’s been rented out for an additional six and a half years since I moved (to Chicago). I manage it all myself and I’ve had great tenants, mostly long-term. It’s been a great investment. Obviously the purchase price has appreciated a lot. 2010 was a really interesting time because Barack Obama had a first-time homebuyer credit where if you were purchasing, you got $8,000 back. I had an FHA loan and I put 3 ½% down, I think my down payment was $8,250 and I got $8,000 back from Obama.

I planned on doing it again in Chicago. I had researched for a year or two... in the West Loop. We loved that area, my fiancée and I. One or two weeks after closing, I found out that I was going to have to move to Silicon Valley for work. We never finished unpacking. We bought it (knowing it would rent well), we knew the rent was going to be good, we put enough down. We put it up on Zillow in October 2017. It rented out in like a week.

Since we moved to Silicon Valley I purchased another place in Chicago in March 2018 that’s doing the exact same thing. I wanted to do it another time just because it has been working out so well. I’m not sure everyone has the necessary cash but it’s been a great investment for me so far.

I self-manage. There are some great services out there, like ThumbTack and Task Rabbit, that will allow you to find a handyman or a plumber and chat with these people who will stop by, book the service, all online. If you have keyless entry into the unit it makes management super easy wherever you are.

‘I didn’t set out in life wanting to get into real estate but just based on the success I’ve had building equity and gaining cash flow, it is working out so well that how could it not be a fundamental part of my investing philosophy.’
—Jason Puckett, multiple rental owner

[Finding and vetting tenants] is definitely one of the most challenging parts. I used to fly from Chicago to Scottsdale and give people tours. I’ve since found good realtors that will do it at a relatively low cost. They run the credit checks and get all the necessary information. We’ve had good luck.

If you’d want to live there yourself, and it’s a good amount of rent, for a good location, it should rent out well. I don’t think I’ve ever had a property sit vacant for more than one or two weeks. I haven’t had any problems, no malicious tenants, no parties out of control. I always collect a security deposit up front. I’ve had some wear and tear above and beyond normal. But it’s always worked out just fine.

I didn’t set out in life wanting to get into real estate but just based on the success I’ve had building equity and gaining cash flow, it is working out so well that how could it not be a fundamental part of my investing philosophy. I think there’s a lot of mental obstacles for people that might be interested but once you do it it’s really simple. There are more months without headaches than with headaches, if that makes sense.

I’ve been extremely conservative in my purchases. I haven’t ever purchased an extremely high-end property. I don’t overbuy. I’m extremely cautious and I’ve bought the lower-end places in the nicest neighborhoods possible. Even if there was a downturn, I still would be able to make the payment.”

Mallory Micetich graduated college in 2009 and was one of only a few in her graduating class to land a job – in Washington, D.C., doing communications for Congress. She lived in a basement apartment within walking distance of Capitol Hill to save money for a down payment, believing homeownership was an important life step. Initially, she felt she was serving her country, but over time the toxic political climate wore her down. Micetich chased a good opportunity to New York just two years after closing on a townhouse just outside D.C., and shortly after relocated to Denver, where she thinks she’ll be long-term.

“Ever since I graduated college I started saving. It was challenging but I was pretty frugal. It was a priority. I think I’d always thought that I would be a homeowner, that renting was a temporary situation, especially since there wasn’t much difference between what you’d pay in a rental and a mortgage.

This was right after the crisis. There was this idea that we had to start taking care of our own wealth. I was old enough to understand what was happening, to understand what it meant when you saw all these people going into foreclosure, and it scared me. I don’t know if I’ll ever take the surety of housing for granted. It could be just a couple market moves away from financial security not being there.

The financing was the biggest unknown going into it. I talked to a couple of colleagues and friends who had previously purchased to get a sense of which mortgage lenders to use. Looking back on it, I should have done a whole lot more research. I knew I was in a low-rate environment, that my credit score was really good. That’s pretty much all I knew. I worked with a really great mortgage broker and ultimately I ended up going with a 10-year adjustable-rate mortgage. [The post-crisis consumer financial protections] made me feel really comfortable with an ARM. This was not my forever home. I would use it as an investment or a stepping stone. The rate is maxed at 2.125%. Yeah, it’s a REALLY good interest rate.

Working in political communications in 2016, the lead-up to the election, I needed to get out of there. And there was an opportunity in New York. I wanted to broaden my professional experience.

The “L” word is really weird for me because I don’t feel like a landlord. I know I have responsibilities to my tenants and I do take that very seriously. It just isn’t something I’m pursuing as a career. It’s happenstance. I wasn’t ready to sell when I first moved and the more I learn about the selling process, I have a lot of fears about it. There may even be more unknowns in selling than in buying. The idea of another year or two years to really find out what that’s going to mean felt really good. I am saving up now to do a slew of renovations before I sell.

I’ve had wonderful tenants, they were great, I was lucky to find them. They are having their second kid so a two-bed, one-bath is not ideal. I’m currently searching for tenants. At that time I was going to be in New York and didn’t feel I needed a property management firm. This time I do. My job is busy. I travel frequently. It’s really hard to step away for an undetermined amount of time, to do cleanup and repairs.

‘I don’t know if I’ll ever take the surety of housing for granted. It could be just a couple market moves away from financial security not being there.’
—Mallory Micetich, moved from D.C. to New York to Denver

[If I could go back in time to 2014], I would absolutely tell myself to not do it. I would tell myself to research other investment vehicles, be okay with spending a little more money to move out of a basement. That’s okay. I just had this idea that rent was throwing money away. I don’t know if I think that any more. There’s a lot of convenience and freedom in renting, feeling that my life can develop and move, whether for career or personal decision. That freedom is worth some of the financial trade-off.”

Andrea
Riquier

Andrea Riquier reports on housing and banking from MarketWatch's New York newsroom. Follow her on Twitter @ARiquier.

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